Measuring labor-force participation and the incidence and duration of unemployment
James Hamilton (Univeristy of California, San Diego)
The underlying data from which the U.S. unemployment rate, labor-force participation rate, and duration of unemployment are calculated contain numerous internal contradictions.
This paper catalogs these inconsistencies and proposes a reconciliation. We find that the usual statistics understate the unemployment rate and the labor-force participation rate by about two percentage points on average and that the bias in the latter has increased since the Great Recession. The BLS estimate of the average duration of unemployment overstates by 50% the true duration of uninterrupted spells of unemployment and misrepresents what happened to average durations during the Great Recession and its recovery.
Co-author: Hie Joo Ahn (Federal Reserve Board)
URL for the paper’s location is http://econweb.ucsd.edu/~jhamilto/AH2.pdf
James D. Hamilton has been a professor in the Economics Department at the University of California at San Diego since 1992, where he currently holds the Robert F. Engle endowed chair in economics. He served as department chair from 1999-2002, and has also taught at Harvard University and the University of Virginia. He received a Ph.D. in economics from the University of California at Berkeley in 1983.